Libor scandal puts Barclays CEO under pressure

MaxColchester

--Politicians and investors round on the CEO

--Labour party to call for criminal investigation

--CEO and three top executives have pledged to give up 2012 bonuses

(Adds detail in paragraph 9.)

LONDON--Pressure mounted on Barclays PLC
BCS, +0.84%
Chief Executive Bob Diamond on Thursday as Chancellor of the Exchequer George Osborne said he has serious questions to answer immediately and as investors rounded on him following revelations that the bank had attempted to manipulate inter-bank lending rates.

Mr. Osborne said Mr. Diamond must provide details about exactly when he knew about the manipulation that has seen Barclays pay GBP290 million to settle a long-running investigation by U.S. and U.K. regulators into the issue.

"Who in the Barclays management was involved and who therefore should pay the price? We all want to hear his answers," Mr. Osborne told lawmakers in Parliament. "The story of irresponsibility is not over yet."

The chancellor said the Treasury, Financial Services Authority and Bank of England are currently conducting a review of the operation of the London interbank offered rate benchmark--which is known as Libor and is the rate used to price home and auto loans, corporate debt and derivatives totaling more than $350 trillion.

Mr. Osborne said any gaps in the criminal regime would be examined as part of the review.

"I cannot comment today on possible criminal investigations for individuals involved in this activity," Mr. Osborne said. "The authorities are exploring every avenue open to them but the scope of the FSA's criminal powers granted be the previous government does not extend to being able to impose criminal sanctions for manipulation of Libor."

Mr. Osborne said there are a number of individuals being investigated by the FSA, adding that the number is expected to increase as the investigations continue.

Also, next week, the government, which next week will be publishing a consultation in response to the report on the failure of RBS, will consider the possibility of criminal sanctions for directors of failed banks where there is proven criminal negligence, Mr. Osborne said.

Meanwhile, the head of the Labour opposition party has called for a criminal investigation into the matter.

"The public who are paying the price for bankers' irresponsibility will expect nothing less," Ed Miliband said during speech at the Unite Union's policy conference in Brighton.

Barclays declined to comment on the situation Thursday.

The backlash contributed to a tumble in Barclays' share price, off 11% to GBP1.75 at 1242 GMT, dragging down other U.K. bank shares.

Mr. Diamond and three top executives have already pledged to give up their 2012 bonuses, but some experts fear this won't be enough to appease growing public and political unrest over the behavior of Barclays' top management. On Wednesday night, the chairman of the U.K.'s Treasury Select Committee hit out saying that Barclays' actions were "inexcusable."

The debacle is the latest black eye for Mr. Diamond whose reputation in the U.K. has hit new lows in recent months. In the U.K., Mr. Diamond has long been reviled as the poster boy of U.S. corporate excess, with one prominent politician branding him the "unacceptable face of banking."

In the space of little over a year, the bank has had to pay millions in compensation to customers for misselling them payment insurance. The bank may also be on the hook for up to GPB500 million after the U.K. Treasury said it used a tax loop hole. Barclays denies that it acted illegally.

Since his tirade defending top banker pay following the 2008 financial crisis, Mr. Diamond has softened his stance. The bank has busily tried to rebuild its credentials for "citizenship," a process that has seen Mr. Diamond partake in a lecture on national television about the important role banks have to play in rebuilding the U.K. economy.

However, the work was largely undone after Mr. Diamond received a bumper payout of around GBP15 million for 2011, even as the bank's shares slumped. Diamond has backpedaled since by tying 50% of his long-term bonus to the bank's future profitability.

The latest revelation by regulators has further fueled public perception that Barclays management is out of touch with reality. Emails provided by U.S. regulators quoted traders promising each other bottles of champagne for fixing the inter-bank lending rate and giving each other high fives.

It isn't only politicians that are losing patience. One major investor warned that scrutiny on Mr. Diamond could be further jacked up if Barclays' second-quarter results weren't up to scratch. Earlier this year, the bank delayed a key target of hitting a return on equity of 13% by 2013.

Mr. Diamond took the decision to build Barclays' investment bank into a global powerhouse but results haven't been forthcoming.

Investors have pressured the bank to cut costs, although senior bankers are reticent about cutting their bonuses. Analysts saw Mr. Diamond's decision to cut his bonus as way of defusing tension.

"We believe that this is a politically sensible move following the furore surrounding directors' pay at the recent AGM. It appears that there is considerable media pressure for Bob Diamond to step down," said Gary Greenwood at Shore Capital. "Although it is not clear to us whether this is an opinion that is shared by investors or whether it is a move that would create value."

On Wednesday, people familiar with the matter said that Mr. Diamond asked the Barclays board to cut his bonus and not the other way round. Some suggest that by doing this Mr. Diamond will take the sting out of a growing sense of dissatisfaction amongst investors that they aren't getting value for money from Barclays' management."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.